3 Two-Period Model with Endogenous Out- put 1 . * * * . 2 Suppose that the production function is given by Z, F(K., N4) = z, VK. N (T= 0, 1), ' where z, is the total factor productivity, K, is the capital and Nd is the labor demand in each period. Denoting gross investment by lo, interest rate by r and depreciation rate by d, write the firm's in- tertemporal profit maximization problem. 2. ** * 6 K, is detrimental to the firm in period o, i.e., ak, no = -1. Why wouldn't the firm simply set Kj = 0 to avoid reduction in To? 3. *kk 8 Suppose d = , 21 = } and NA = 16. Derive Ki(r) and I.(r). 4. * * * |8 In item 1 the firm sets their marginal profits with respect to capital equal to 0 in order to find the profit-maximizing level of inputs. How- ever, they do not do so when solving item 3 in section 1. Why not